Are Tech Layoffs Going to Be a Headache for Alexandria Actual Property Equities?

Regardless of a comparatively tight labor market, we’re beginning to see huge tech firms announce layoffs. Elon Musk’s acquisition of social media website Twitter garnered a number of press, however we’re seeing an uptick in bulletins from firms like Meta Platforms and Amazon.com. With layoffs and folks working from dwelling, are workplace actual property funding trusts (REITs) like Alexandria Actual Property Equities (ARE -0.52%) in bother?

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Alexandria is a frontrunner in life sciences workplace area

Alexandria Actual Property Equities is an workplace REIT that focuses on life sciences and tech area. The corporate owns about 74.5 million sq. ft of workplace area in Boston, the San Francisco Bay Space, New York Metropolis, San Diego, and different places. The corporate is thought primarily for catering to the life sciences trade, which incorporates prescribed drugs, agtech, and biotech. 

The life sciences workplace area is dominated by specialists, and Alexandria is by far the largest. Constructing laboratory areas requires an in-depth information of laws together with expertise within the sector. Alexandria’s largest tenants embody Bristol-Myers Squibb, Moderna, Eli Lilly, Sanofi, and Takeda. These firms are all giants within the pharmaceutical sector. 

Distant working isn’t excellent for all times sciences firms

The work-from-home mannequin isn’t notably well-suited for all times sciences. Laboratory work needs to be executed on-site; the corporate believes this provides them a bonus over different workplace REITs, that are struggling to keep up occupancy. For instance, on the finish of the third quarter of 2022, Alexandria had an occupancy degree of 94.3%. A non-life sciences workplace REIT like SL Inexperienced (SLG -1.19%) had an occupancy degree of 90.9%. 

Alexandria has a fairly numerous tenant base, with nobody tenant accounting for greater than 3% of annual income. Meta was once an enormous tenant, however Alexandria bought the constructing that housed the corporate, and it’s now not a major tenant. There have been some layoffs within the pharma area, however nothing like the ten,000-plus bulletins at Meta or Amazon. 

Alexandria does have some tech tenants, reminiscent of Uber Applied sciences, Maxar Applied sciences, and SAP. Nonetheless, solely SAP has made current layoff bulletins, and it appears to be like like a lot of the layoffs might be abroad. To this point, it does not seem that Alexandria’s tenant base is experiencing monetary difficulties. 

All the sector is beneath a cloud

Workplace REITs have been beneath a cloud because the COVID-19 pandemic proved that many firms can function successfully with a completely distant workforce. The open query is whether or not firms can really scale back area. An individual who works from dwelling three days out of the week will nonetheless want a desk, which implies the sq. footage required in all probability will not change a lot. Whereas many buyers are nonetheless bitter on the workplace REIT area, Alexandria is without doubt one of the high performers within the area. 

Alexandria has guided for 2022 funds from operations (FFO) to come back in round $8.41 per share. This provides the corporate a a number of of 18.3 occasions 2022 FFO per share, which is an affordable a number of for a market chief. The corporate additionally has a dividend yield of three.1%, which is low for a REIT. Nonetheless, Alexandria is continuous to put money into its enterprise, which may spur future development. REITs normally underperform when rates of interest are rising, but when the Fed indicators at its December assembly that charge hikes are largely completed, we may see buyers return to the REIT area normally.